The New York State Banking Department
("NYSBD"), as part of its ongoing effort to strengthen understanding of and
compliance with Section 296-a of the Executive Law, New York States fair lending
statute, has set forth the guidelines below to assist supervised institutions, their
subsidiaries and affiliates in managing the operational challenges presented by indirect
automobile lending. We want to alert you to the potential misuse of discretion by
automobile dealerships and other third-party origination sources, in the charging of
lender approved finance commissions, commonly known in the industry as "dealer
markups" or "dealer overages" when a lender underwrites the credit
transaction. In such instances, the dealers negotiation of the finance
commission on a loan note or a lease agreement is part of the credit transaction and
finance commissions must be charged on a nondiscriminatory basis. We recommend the
following compliance strategies, either in the development of a new business line or in
the enhancement of an existing program:

Know the dealer and its business practices before entering
into a third-party loan origination agreement. Consider adopting a written agreement in
which the dealer certifies that they understand and comply with New York States Fair
Lending law, Executive Law 296-a. Evaluate your relationship with the dealer on a periodic
basis, to determine whether practices need to be revised or the relationship terminated,
and make provision for such evaluation in your formal compliance procedures.

Ask the dealer for a copy of any policies or procedures
they use when arranging financing for customers, including the criteria or formulas used
to place customers in risk brackets and assign finance commissions. Advise the dealer of
any areas of weakness identified by your compliance officer, such as unduly subjective
language or standards.

Consider limiting dealer discretion by placing ceilings, or
"caps," on the amount of finance commission that can be charged. Several
supervised entities have voluntarily adopted finance commission ceilings and found them to
be a useful risk management and monitoring device, although these ceilings do not offer
guaranteed protection from liability.

Invite the dealer to send a representative to attend your
annual fair lending training or share audiovisual training materials with the dealer.

Engage in self-testing for dealers that provide a heavy
volume of business. This testing should be designed to indicate whether or not the dealer
has based its finance commission on any prohibited factors. Legitimate reasons for
differences in the interest rate would include credit quality differences between the
applicants and demonstrable differences in business climate at the time of the offers.

As with any third-party origination
relationship, the indirect automobile lending or leasing business carries with it the
potential for compliance issues due to the actions of the other party. The New York State
Banking Departments current Fair Lending examination procedures provide for a review
of an entitys indirect automobile lending program, where appropriate. A typical fair
lending review of your institution may include, but is not limited to, the following
items:

Statistical and regression analysis of the transaction
process for evidence of potential discrimination based on prohibited factors.

Statistical and regression analysis of product pricing for
evidence of potential discrimination based on prohibited factors.

As part of a fair lending review, The New
York State Banking Department may perform a comparative file review of a randomly
selected, statistically relevant number of applications/loan records, testing for evidence
of potential disparate treatment and or disparate impact. The selection process of
application/loan records will provide a control group of non-protected class applicants
and a test group of protected class applicant profiles, based on the following:

Surrogate race of primary applicants based on census tract
data developed from the primary applicants home address (the Department will
consider census tracts with at least 80% minority population to be a majority-minority
census tract).

Age of primary applicants.

Review of fair lending policy and procedures.

Review of fair lending training program for employees.

Review of internal/external audit control measures that are
in place to ensure adherence to established fair lending protocol.

This letter and the above suggestions
should serve only as a general guideline for developing a sound approach for managing the
risks that can accompany the opportunities provided by third-party originators. If you
should have any questions regarding this communication, we invite your written inquiry and
would welcome the opportunity to meet with you to discuss your questions.